| Volume 22 Number 18, October 7, 2002
From Page 5)
SARBANES/SHELBY TO BANKS: STRONGER
PRIVACY PROTECTIONS COMING
Sen. Paul Sarbanes (D-MD), chairman of the Senate
Banking Committee, and Sen. Richard Shelby (R-AL), who next year
will be the panel's ranking Republican, warned the banking industry
that the Gramm-Leach-Bliley Act will not be the last word on privacy
and that stronger privacy protections eventually will be enacted.
At a September 19 hearing, Sarbanes and Shelby
agreed with pro-consumer testimony that Americans deserve more privacy
and that States rights therefore needed to be preserved.
They also challenged industry assertions that the
First Amendment barred Congress from enacting privacy laws that
would limit banks' uses of personal data.
Noting industry's position during the 1999 GLB debate
that there should be no privacy protection, Sarbanes directly addressed
John Dugan, a Washington attorney representing the Financial Services
Coordinating Council (FSCC).
"Mr. Dugan, I have to say to you and your clients
here today, this issue has not reached a point of repose in my judgment.
I don't think the current provisions about privacy protection are
perceived by most people as being adequate. And therefore I think
this issue is going to remain on the agenda, Sarbanes said.
"It seems to me that it behooves those interested
in this subject . . . to think about in a positive and constructive
way what kind of system could provide this extent of protection
that most people would conclude were appropriate and put the issue
to rest," Sarbanes continued.
"Otherwise, it 's my prediction, if we continue
along in the current path, there will be the equivalent of Enron
and Worldcom one of these days, in the privacy field and we may
well end up with a regime that will make you ask, 'How did we get
to this point?' And the answer is, 'You got there because you weren't
trying to work through to a positive and rational solution,'"
Shelby said: "The people ultimately are going to
prevail, no matter how much money is spent (by industry), because
this is an important right of the people."
Sarbanes opened the questioning by citing an
FSCC pamphlet, in which Professor Fred Cate, of Indiana Univ., argued
against opt-in in favor of opt out because the two standards essentially
gave consumers the same level of protection. Here is an excerpt
from the exchange:
Sarbanes: Am I to take from this statement
that you support requiring opt out for the sharing of any financial
Cate: I think that would not be accurate
that I would support opt out for all financial information..
Sarbanes: You make the point here that opt
out gives the consumer exactly the same level of control and therefore
you should use it. The alternative to opt out is opt in, and then
you are very critical of opt in. Should we have opt out at least
as a starting point or at as a minimum for the sharing of financial
Cate: I would not support that.
Sarbanes: How does that square with your
Cate: It squares in this way. If there are
areas or uses of information that Congress believes that consumers
should have control over, then I think opt out is a better and less
extensive system. I personally don't believe under the First Amendment
that Congress has the constitutional authority to extend to consumers
the right to control all uses of their financial information.
Sarbanes: You don't think the information
belongs to the consumer?
Cate: I think the question of who it belongs
to is more or less irrelevant. Under the Constitution, I don't think
Congress has the authority to use the power of the courts or federal
financial regulators to enforce that sort of restraint on the flow
Sarbanes: To opt out as well as opt in?
Cate: Yes, but I believe the opt-in restraint
is more severe so the First Amendment impediment would be greater.
Sarbanes: So if I'm a consumer and I give
it to a financial institution, it's then gone. They can do with
it what they wish?
Cate: There are many uses of information
that if they don't present a risk of harm . .(interrupted)
Sarbanes: Who should make that judgment?
Should I make that judgment as the one who provided that information?
Or do you get that information from me for a limited and specific
purpose, and then once you have it, can the financial institution
can turn around and do with it what you will?
Cate: I believe it is a matter of law that
if it is obtained with an express condition it will not be used
elsewhere, as has been enforced by the FTC, then that restraint
should be enforced. But I think the Constitution limits the power
of the government to create an impediment at the start of all uses
of financial information absent some form of compelling governmental
Sarbanes: What do you think of that Mrs.
(Phyllis) Schlafly? (of the conservative Eagle Forum)
Schlafly: I'm amazed. I think information
about what I do and what I buy is my property. I don't believe it
belongs to somebody else. If the United States stands for anything,
it's property rights . . .
Sarbanes: So Professor Cate uses the argument
in this pamphlet that you shouldn't have opt-in because you have
opt out. So I just asked him, well, does he then apply opt out to
all aspects of providing information, and now I find out that 'no,
he doesn't.' It's sort of a disingenuous argument.
Minnesota Attorney General Mike Hatch said that
there was a compelling state interest to curb the $15-20 billion
in telemarketing fraud, targeted mainly at seniors, facilitated
by the sale of credit card account information to telemarketers.
North Dakota State Rep. Jim Kasper said that
major bank lobbyists used a combination of misinformation and fear
tactics in a successful campaign to replace the State opt-in law
with a statute modeled after GLB. In June, North Dakotans voted
73-27% to reinstate the opt-in standard. Vermont Attorney General
William H. Sorrell predicted that the legislative fight in States
was only beginning.
Schlafly's comments about property rights intrigued
Sarbanes, who said he had not given much thought to the property
dimension until she testified.
"If it means so much economically to these institutions
to get this information and use it, it obviously it has some kind
of property value, and it starts out coming from the consumer. .
. . That value ought to be protected our perhaps compensated, which
raises issues beyond privacy," Sarbanes said. A video of the hearing,
and witness statements are at available at: http://banking.senate.gov/02_09hrg/091902/index.htm